Quality of Government and Subjective Poverty in Europe

We study the effect of quality of government on subjective poverty across European countries and regions, taking advantage of recently released data on the quality of public institutions and of information on household subjective poverty, at the sub-national level. In the analysis we separate the effects of quantity and quality of public services on perceived well-being, controlling for the size of the local government and for the quantity of in-kind services received by each household of the sample. Results suggest that good governance significantly reduces the probability of being subjectively poor, both over the whole population and also among households that are poor in terms of monetary income. We then estimate the greater cost that a family has to bear to achieve a given level of welfare, if it lives in a region with inefficient public institutions. Our measure of this inefficiency cost is around 6% of disposable income.